The Dixie Group Inc.

08/06/2026 | Press release | Distributed by Public on 08/06/2026 12:20

Quarterly Report for Quarter Ending June 27, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated condensed financial statements and related notes appearing elsewhere in this report.
FORWARD-LOOKING INFORMATION
This Report contains statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include the use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Such forward-looking statements relate to, among other matters, our future financial performance, business prospects, growth strategies or liquidity. The following important factors may affect our future results and could cause those results to differ materially from our historical results; these factors include, in addition to those "Risk Factors" detailed in item 1A of this report, and described elsewhere in this document, the cost and availability of capital, raw material and transportation costs related to petroleum price levels, the cost and availability of energy supplies, the loss of a significant customer or group of customers, the ability to attract, develop and retain qualified personnel, materially adverse changes in economic conditions generally in carpet, rug and floorcovering markets we serve and other risks detailed from time to time in our filings with the Securities and Exchange Commission.
OVERVIEW
Our business consists principally of marketing, manufacturing and selling floorcovering products to high-end customers through our various sales forces and brands. We focus primarily on the upper end of the floorcovering market where we believe we have strong brands and competitive advantages with our style and design capabilities and customer relationships. Our Fabrica, Masland, DH Floors and TRUCOR brands have a significant presence in the high-end residential floorcovering markets. Dixie International sells all of our brands outside of the North American market.
Middle East Conflict
The Middle East conflict that began in late February 2026 has contributed to increased U.S. interest rate volatility, primarily through its effect on energy markets. As oil prices rose sharply amid concerns about potential supply disruptions, particularly through the Strait of Hormuz, market participants reassessed the inflation outlook and the likely path of monetary policy. We expect volatility to remain elevated until the conflict is definitively resolved. In addition, higher gasoline and diesel prices impact the cost of many of our products and contribute to a more cautious consumer outlook. Depending on the duration of the conflict, the economic impact will vary across our markets, with increased inflation reducing consumer sentiment and discretionary spending. We will continue monitoring the situation during this period of heightened uncertainty.
Housing Market Update
We continue to be impacted by soft consumer demand driven by persistent inflationary pressures and elevated interest rates. Persistent inflation continues to hinder consumer discretionary spending, which has caused consumers to postpone large purchases of durable goods such as flooring. Macroeconomic factors continue to impact new home construction and residential renovation and remodeling activity. Residential remodeling is a primary sales driver of flooring products, and most flooring is replaced before a home is listed for sale or just after a home purchase is completed. The current housing market conditions have suppressed remodeling activity as home sales remain soft. Housing turnover rates remain suppressed due to high home mortgage rates and consumers continue to face a higher cost of living. We have, to some extent, offset the impact of a soft housing market and decreased renovation activity through cost containment, improved productivity and lower input costs. Due to low housing availability, aging stock and greater household formation, we believe demand in our markets will accelerate when interest rates decline. However, the ongoing impact of soft consumer demand, inflationary pressures and high interest rates to our business, financial condition, and results of operations cannot be determined at this time.
Trade and Tariffs Update
On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act ("IEEPA"), which the U.S. administration relied on to impose certain tariffs, does not authorize the administration to impose tariffs. On March 4, 2026, the U.S. Court of International Trade ("CIT") issued an order directing the U.S. Customs and Border Protection ("CBP") agency to begin formalizing a process for refunds. On April 20, 2026, the CBP launched an online portal that can be used to submit IEEPA tariff refund requests. All requests will be reviewed by the CBP to determine validity prior to the issuance of refunds. We were able to submit our IEEPA tariff refund request on April 20, 2026 through the portal. We have paid IEEPA tariffs to the U.S. government since the enactment on February 1, 2025, and accordingly we submitted our request for refund of $3.3 million related to IEEPA tariffs paid during the period from February 1, 2025 to February 20, 2026. Based on the U.S. Supreme Court's ruling, related CIT proceedings, and our submission of tariff refund requests and assessment of the recoverability of
amounts paid, we concluded that the recovery of previously incurred IEEPA tariffs is probable. Under a loss recovery accounting method, we recognized a receivable of $3.3 million for the IEEPA tariffs incurred in Receivables - tariff refund within the condensed consolidated balance sheet and a corresponding reversal of cost of sales for $3.3 million within the condensed consolidated statement of income for the six-month period ended June 27, 2026. Prior to June 27, 2026, we received partial payments of $261 thousand plus an immaterial amount of interest of previously paid tariffs. Subsequent to June 27, 2026, we received additional partial refunds totaling $3.0 million plus an immaterial amount of interest which leaves only $21 thousand remaining of the original receivable. We will continue to monitor regulatory guidance regarding the refund process.
We continue to monitor trade policy and tariff announcements, including various executive orders issued by the current U.S. presidential administration. Increased restrictions on global trade, including an increase in U.S. tariffs and any retaliatory responses thereto, could result in, among other things, increased input costs, supply chain disruptions, and decreased consumer demand, any of which may adversely affect our business financial condition and results of operations.
RESULTS OF OPERATIONS
The following tables provide information derived from our unaudited condensed consolidated financial statements for the periods indicated. Percentages used are expressed as a percent of net sales. The discussion that follows each table should be read in conjunction with our unaudited consolidated condensed financial statements as well as our 2025 Annual Report on Form 10-K for the year ended December 27, 2025.
Three Months Ended June 27, 2026 Compared with the Three Months Ended June 28, 2025
Net Sales
Three Months Ended
($ in thousands) June 27,
2026 		June 28,
2025 		Inc./(Dec.) Inc./(Dec.)
Net Sales $ 68,614 $ 68,573 $41 0.1%
For the second quarter of 2026, our net sales from continuing operations were slightly above levels of the second quarter of 2025.
Three Months Ended
June 27,
2026 		June 28,
2025
Net sales 100.0 % 100.0 %
Cost of sales 70.5 % 70.8 %
Gross profit 29.5 % 29.2 %
Selling and administrative expenses 24.4 % 24.5 %
Other operating Income, net (0.1) % (0.1) %
Facility consolidation and severance expenses, net 0.7 % 0.2 %
Operating income 4.5 % 4.6 %
Gross Profit
Gross profit as a percentage of net sales was 29.5% in the second quarter of 2026 compared with 29.2% in the second quarter of 2025. The gross profit percentage in 2026 reflects both cost reductions and improved operating efficiencies in our operations.
Selling and Administrative Expenses
Selling and administrative expenses were $16.7 million, or 24.4% of net sales, in the second quarter of 2026 compared with $16.8 million, or 24.5% of net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales decreased in the second quarter of 2026 as compared to the second quarter of 2025 due to lower selling expenses.
Other Operating income, Net
Net other operating income was $90 thousand in the second quarter of 2026 compared with income of $68 thousand in the second quarter of 2025.
Facility Consolidation and Severance Expenses, Net
Facility consolidation and severance expenses in the second quarter of 2026 were $500 thousand compared with $117 thousand in the second quarter of 2025. The expenses in 2026 included costs related to our restructuring plan for the consolidation of a portion of our west coast yarn processing into our east coast yarn processing and costs related to our east coast consolidation plan.
Operating Income
We reported operating income of $3.1 million in the second quarter of 2026 compared with operating income of $3.2 million in the second quarter of 2025. The decrease in operating income was due to costs associated with the consolidation of our yarn processing facilities during the second quarter of 2026. Costs associated with the consolidation of our yarn processing facilities during the second quarter of 2026 affected operating income in the second quarter.
Interest Expense
Interest expense increased $94 thousand in the second quarter of 2026 compared with the second quarter of 2025. The increase is primarily the result of higher interest rates in 2026 on our debt.
Other (Income) Expense, Net
Net other (income) expense was income of $55 thousand in the second quarter of 2026 compared with income of $4 thousand in the second quarter of 2025. Net other (income) expense includes interest income of $51 thousand in the second quarter of 2026.
Income Tax Provision
We recorded an income tax expense from continuing operations of $52 thousand in the second quarter of 2026 compared to an income tax expense of $67 thousand in the second quarter of 2025.
The effective tax rate for the three months ended June 27, 2026 was 4.40% compared with an effective tax rate of 5.07% for the three months ended June 28, 2025. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the second quarter of 2026 and 2025. We are in a net deferred tax liability position of $91 thousand at June 27, 2026 and December 27, 2025, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $583 thousand and $576 thousand at June 27, 2026 and December 27, 2025, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of June 27, 2026 and December 27, 2025.
Net Income (Loss)
Continuing operations reflected income of $1.1 million, or $0.07 per diluted share, in the second quarter of 2026 compared with income of $1.3 million, or $0.08 per diluted share, in the same period in 2025. The loss from discontinued operations was $42 thousand in the second quarter of 2026 compared to a loss of $94 thousand in the second quarter of 2025. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
Six Months Ended June 27, 2026 Compared with the Six Months Ended June 28, 2025
Net Sales
Six Months Ended
($ in thousands) June 27,
2026 		June 28,
2025 		Inc./(Dec.) Inc./(Dec.)
Net Sales $ 127,995 $ 131,563 $(3,568) (2.7)%
For the first six months of 2026, our net sales from continuing operations decreased 2.7% compared with the first six months of 2025. The lower net sales were attributed to continued lower demand driven by continued high interest rates and inflation.
Six Months Ended
June 27,
2026 		June 28,
2025
Net sales 100.0 % 100.0 %
Cost of sales 69.1 % 71.9 %
Gross profit 30.9 % 28.1 %
Selling and administrative expenses 25.6 % 25.6 %
Other operating Income, net (0.1) % (0.1) %
Facility consolidation and severance expenses, net 0.4 % 0.2 %
Operating income 5.0 % 2.4 %
Gross Profit
Gross profit as a percentage of net sales was 30.9% in the first six months of 2026 compared with 28.1% in the first six months of 2025. The higher gross profit percentage in 2026 is attributable to the $3.3 million in IEEPA tariff refunds recorded during the first six months of 2026 as well as careful management of costs and improved efficiencies.
Selling and Administrative Expenses
Selling and administrative expenses were $32.7 million, or 25.6% of net sales, in the first six months of 2026 compared with $33.7 million, or 25.6% of net sales in the year earlier period. Selling and administrative expenses as a percentage of net sales remained relatively flat in the first six months of 2026 as compared to the first six months of 2025 due to lower sales volumes offset by lower selling expenses.
Other Operating income, Net
Net other operating income was $174 thousand in the first six months of 2026 compared with income of $166 thousand in the first six months of 2025.
Facility Consolidation and Severance Expenses, Net
Facility consolidation and severance expenses in the first six months of 2026 were $612 thousand compared with $232 thousand in the first six months of 2025. The expenses in 2026 included costs related to our restructuring plan for the consolidation of our yarn processing facilities and costs related to our east coast consolidation plan.
Operating Income
We reported operating income of $6.4 million in the first six months of 2026 compared with operating income of $3.2 million in the first six months of 2025. The increase in operating income was due to $3.3 million in IEEPA tariff refunds recorded during the first six months of 2026.
Interest Expense
Interest expense increased $506 thousand in the first six months of 2026 compared with the first six months of 2025. The increase is primarily the result of higher interest rates in 2026 on our debt.
Other (Income) Expense, Net
Net other (income) expense was income of $87 thousand in the first six months of 2026 compared with expense of $84 thousand in the first six months of 2025. Net other (income) expense includes interest income of $85 thousand in the first six months of 2026. Net other (income) expense included a loss of $66 thousand related to an extinguishment of a debt arrangement in the first six months of 2025.
Income Tax Provision
We recorded an income tax expense from continuing operations of $90 thousand in the first six months of 2026 compared to an income tax expense of $79 thousand in the first six months of 2025.
The effective tax rate for the six months ended June 27, 2026 was 3.50% compared with an effective tax rate of 31.73% for the six months ended June 28, 2025. Because we maintain a full valuation allowance against our deferred tax balances, we are only able to recognize refundable credits and a small amount of state taxes in the tax expense for the first six months of 2026 and 2025. We are in a net deferred tax liability position of $91 thousand at June 27, 2026 and December 27, 2025, which is included in other long-term liabilities in our consolidated condensed balance sheets.
We account for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $583 thousand and $576 thousand at June 27, 2026 and December 27, 2025, respectively. Such benefits, if recognized, would affect our effective tax rate. There were no significant interest or penalties accrued as of June 27, 2026 and December 27, 2025.
Net Income (Loss)
Continuing operations reflected income of $2.5 million, or $0.16 per diluted share, in the first six months of 2026 compared with a loss of $328 thousand, or $0.02 per diluted share, in the same period in 2025. The loss from discontinued operations was $245 thousand in the first six months of 2026 compared to a loss of $209 thousand in the first six months of 2025. See Note 20 to the consolidated condensed financial statements for additional details related to discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 27, 2026, cash used in operating activities in continuing operations was $1.4 million. An increase in accounts receivable and receivables for tariffs used $8.1 million during the first six months of 2026. Prepaid and other current assets used $1.3 million primarily as a result of prepaid sample and marketing expenses. An increase in inventory used $559 thousand and an increase in accounts payable and accrued expenses generated $3.4 million of cash during the first six months.
Purchases of capital assets for the six months ended June 27, 2026 resulted in a $175 thousand cash out flow to the business. Depreciation and amortization for the six months ended June 27, 2026 were $2.6 million. We expect capital expenditures to be approximately $2.0 million in 2026 while depreciation and amortization is expected to be approximately $5.5 million.
During the six months ended June 27, 2026, cash provided by financing activities was $758 thousand. We had net borrowings on our current revolving credit facility of $3.0 million. We had net payments on notes payable and financing leases of $2.2 million.
As described in Note 9 to the consolidated condensed financial statements, as of June 27, 2026, we had $55.7 million of indebtedness under our senior credit facility classified as current, due to a subjective acceleration clause in the related loan agreement. Although the debt is classified as current for financial reporting purposes, management does not currently expect repayment of the full outstanding balance within the next twelve months absent an acceleration event. If such an event were to occur, our existing cash and cash equivalents would not be sufficient to satisfy the debt in full and meet our operating needs.
We have evaluated our liquidity position over the next twelve months. In our evaluation we considered recent operating losses, reduced availability under our credit facility, covenant violations and macroeconomic pressures. Management has developed plans that are intended to improve liquidity and address these conditions, including profit improvement initiatives and seeking additional debt financing. Our evaluation of these plans, and our assumptions regarding their execution and timing, requires
significant judgment and is subject to inherent uncertainty. We believe, after having reviewed various financial scenarios, our operating cash flows, credit availability under our revolving credit facility and other sources of financing are adequate to finance our anticipated liquidity requirements under current operating conditions. Our evaluation of these plans, and its assumptions regarding their execution and timing, requires significant judgment and is subject to inherent uncertainty, therefore we have concluded that these plans do not alleviate the substantial doubt about our ability to continue as a going concern. Refer to Note 1 in our consolidated condensed financial statements for detail regarding our assessment as a going concern.
Availability under our MidCap Financial Senior Secured Revolving Credit Facility on June 27, 2026 was $11.4 million which is subject to a $6.0 million minimum excess availability requirement. Significant additional cash expenditures above our normal liquidity requirements, significant deterioration in economic conditions or continued operating losses could affect our business and require supplemental financing or other funding sources.
Changes to Critical Accounting Policies
Our critical accounting policies were outlined in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission. There have been no changes in our critical accounting policies during 2026.
Recent Accounting Pronouncements
Recent accounting pronouncements are disclosed in Note 2 to the consolidated condensed financial statements.
The Dixie Group Inc. published this content on August 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 06, 2026 at 18:20 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]